Narcissism is fundamentally an evolved version of the psychological defence mechanism known as splitting. The narcissist does not regard people, situations, entities (political parties, countries, races, his workplace) as a compound of good and bad elements. He is an "all or nothing" primitive "machine" (a common metaphor among narcissists).
He either idealises his objects or devalues them. At any given time, the objects are either all good or all bad. The bad attributes are always projected, displaced, or otherwise externalised. The good ones are internalised in order to support the inflated ("grandiose") self-concepts of the narcissist and his grandiose fantasies and to avoid the pain of deflation and disillusionment.
The narcissist's earnestness and his (apparent) sincerity make people wonder whether he is simply detached from reality, unable to appraise it properly or willingly and knowingly distorts reality and reinterprets it, subjecting it to his self-imposed censorship. The truth is somewhere in between: the narcissist is dimly aware of the implausibility of his own constructions. He has not lost touch with reality. He is just less scrupulous in remoulding it and in ignoring its uncomfortable angles.
(From the book "Malignant Self-love: Narcissism Revisited" by Sam Vaknin - Click on this link to purchase: http://www.narcissistic-abuse.com/thebook.html)